Question

If the contribution margin ratio for France Company is 36%, sales were $435,000, and fixed costs were $107,000, what was the income from operations?

a. $156,600
b. $107,000
c. $39,680
d. $49,600

Answer 1

To find the income from operations, first calculate the variable costs by multiplying the sales revenue by (1 - contribution margin ratio). Then, subtract the fixed costs from the variable costs to get the income from operations.

Step-by-step explanation:

To find the income from operations, we need to calculate the variable costs and subtract them from the sales revenue. The contribution margin ratio tells us the proportion of each sales dollar that contributes to covering the fixed costs and generating profit.

In this case, the contribution margin ratio is 36%, which means that 36% of each sales dollar is available to cover the fixed costs and generate profit.

The variable costs can be calculated by multiplying the sales revenue by (1 - contribution margin ratio). Variable costs = $435,000 * (1 - 0.36) = $278,400.

The income from operations is calculated by subtracting the fixed costs from the variable costs. Income from operations = Variable costs - Fixed costs = $278,400 - $107,000 = $171,400.